LinkedIn looks to build on its impressive resume

“I like solving business strategy problems and I like creating whole new ecosystems for people,” Hoffman said. “I am not passionate about leading a 3,000-person plus organization and all the work that goes into doing that in a world-class way. I always knew I didn’t want to be CEO forever, but I still wanted to get LinkedIn to where it needed to get.”

That’s where Weiner came into the equation. Weiner had recently ended a seven-year stint as a key executive at Yahoo Inc. and was helping out various startups on a part-time basis as an entrepreneur-in-residence at venture capital firms Greylock Partners and Accel Partners.

After Hoffman persuaded him to join LinkedIn as its president in late 2008, Weiner was promoted to CEO six months later.

The partnership has proven highly productive. LinkedIn’s membership has increased sevenfold from the 33 million members that had set up free profiles on the service at the time Weiner came on board. Revenue this year is expected to approach $1.5 billion, 19 times more than the $79 million generated before Weiner’s arrival. The company’s profits are also steadily rising. Analysts predict LinkedIn’s net income will rise about 20 percent this year to $26 million.

LinkedIn has made a habit of topping analyst projections. That is something the company has done in every quarter since its IPO, helping to propel its stock.

Yet LinkedIn remains in Facebook’s shadow. Since 2008, Facebook has grown even faster as the number of people using its social network swelled 11-fold to 1.1 billion and annual revenue soared 25-fold from $272 million last year to a projected $6.7 billion this year.

But LinkedIn has been outpacing Facebook during the past year, both in terms of user growth (LinkedIn’s membership is up 35 percent versus 23 percent at Facebook) and revenue (LinkedIn’s first-quarter revenue rose 72 percent versus 38 percent at Facebook).

The secret to LinkedIn’s success? The company has turned its service into an easily searchable database, a treasure trove for employers and their headhunters. The company makes most of its money from the fees it charges for analytical tools and better access to individual profiles. About 18,000 companies now pay LinkedIn for its so-called “talent solutions.”

Most employers rely on LinkedIn to find so-called “knowledge” workers who can fill positions that require a college degree or other specialized training. Think: computer programmers, website developers, scientists, accountants, lawyers and executives. Although McDonald’s is unlikely to turn to LinkedIn to find a cashier, a coffee shop might use the service to recruit a barista. A ski resort might scour the site in search of ski instructors.

“They are not even scratching the surface of what they might eventually be able to do,” said Wedge Partners analyst Martin Pyykkonen.

LinkedIn is expected to generate even more revenue by selling more ads to accompany content such as professional insights from famous executives such as Richard Branson and Jack Welch, as well as other compelling content that induces its membership to visit the site more frequently and dwell for longer periods.

LinkedIn is also working on more analytical tools to sell to sales representatives who are “looking to turn a cold call into a warm prospect,” Weiner said.

Almost everything will have to go right for LinkedIn to support its lofty stock price. Investors are currently paying about $121 for every dollar in LinkedIn’s estimated earnings this year and $13 for every dollar in projected revenue. By comparison, Facebook’s stock is selling for $47 for every dollar in projected earnings this year and $10 in every dollar in projected revenue.

“You really have to buy into the idea that LinkedIn’s revenue is going to grow 10-fold from here to justify its valuation,” Wedbush Securities analyst Michael Pachter said. “It’s a good company with an expensive stock.”

LinkedIn’s success also could attract more competition. The company’s biggest threat, of course, is Facebook, which already knows where most of its users work and where they went to school.

Weiner isn’t worried about Facebook expanding into LinkedIn’s turf because the company’s research indicates that most people want a dividing line between their professional and personal identities.

Facebook hasn’t yet shown any desire to open a professional networking channel, but Pachter thinks there is a greater likelihood of it happening if LinkedIn continues to do well.

“Facebook could just say, ‘Hey are you tired of going to LinkedIn? Just enter all your professional information here and we’ll code it so only your business friends can see it,’” Pachter said.

Another alternative would be for Facebook to buy LinkedIn. But Pachter doubts that will happen now that LinkedIn is worth so much.

One comment

I consider my own experience with LinkedIn to be quite negative. I have filed formal complaints against them with the FCC, the FTC and with the State of California Department of Justice regarding what I consider to be their improper operating practices. Please see this URL for one example.

The FCC replied that my complaint is with regard to internet content over which they have no jurisdiction. The FTC has yet to be heard from.

The State of California Department of Justice replied to me by mail that they will “… request a response from them regarding your concerns.”, but also writes that their agency is “… prohibited by law from representing individual citizens in legal matters.”